March 7, 2018 / 2:17 AM / 3 months ago

UPDATE 2-Hedge fund Citadel cuts Aptigon unit headcount by 34 pct -sources

By Svea Herbst-Bayliss

NEW YORK, March 7 (Reuters) - Citadel, one of the world’s largest hedge fund managers, has cut staff by more than 30 percent in one of its stock-picking units in what several people with direct knowledge of the layoffs described as a surprise move.

From late February through Monday, 49 people had lost their jobs at the firm’s two-year-old Aptigon business. They include portfolio managers, analysts, associates and other ancillary staff, according to four people who were not authorized to speak publicly about internal Citadel matters.

That shrinks Aptigon’s headcount by roughly 34 percent, one of the biggest industry downsizings in recent times, industry investors said. More than two dozen people from Aptigon have found other positions in the firm, the sources said. As a firm Citadel, which is headquartered in Chicago and oversees $27 billion, employs roughly 1,900 people who work in its hedge fund businesses.

“We changed the leadership of Aptigon Capital because the prior leadership had failed to demonstrate it could generate the performance we expect from a Citadel business. We are committed to the success of Aptigon and will continue to recruit leading talent to the team,” Citadel spokesman Zia Ahmed said.

The departure of industry veteran Richard Schimel, who was wooed to Citadel by its founder Ken Griffin in 2016 after Schimel ran Diamondback Capital and Sterling Ridge Capital, was reported by several news outlets on Feb. 22.

But the cuts have also included money managers and analysts Rob Stenhouse, Matt Dublin, Jon Greenbaum, and Brett Caughran, as well as executives David Bonfili and Keith Brenner, the sources said. They declined to comment for this article.

The cuts came as a surprise because Aptigon is a relatively new business that Citadel had been pouring resources into and many of the portfolio managers had recently begun to put money to work.

Aptigon manages money for Citadel’s main multi-strategy Kensington and Wellington funds which returned 13 percent last year. Spokesman Ahmed said Aptigon lost money both in 2017 and the first two months in 2018.

Citadel changed direction at Aptigon after more than two-thirds of its portfolio managers lost money, Ahmed said, adding Citadel wants to focus its resources on top performers and wanted to send that message to them.

Citadel hired 150 people in its Global Equities and Surveyor units in 2017, Ahmed said.

But some were puzzled that Griffin, who signed off on all of the hires, moved so quickly on experienced managers Citadel spent millions of dollars to lure from prominent firms such as D.E. Shaw.

“We were only beginning to put capital to work last year and if performance metrics had been an issue, I would have thought there would have been conversations and warnings,” said one former portfolio manager. “But that didn’t happen.”

Several sources said there seemed to be growing friction between Griffin and Schimel as the two men had very different styles and Schimel was trying to trying to build a collaborative culture at Aptigon. Ahmed said disagreements between the two men centered on the direction of the business and its inability to generate consistent performance. “Citadel has always had a collaborative culture,” he said.

Aptigon employees are primarily located in Greenwich, Connecticut, a state that is home to many rival hedge funds including Steven A. Cohen’s Point72 Asset Management, and New York. Some had worked out of Citadel’s San Francisco office.

Schimel, who had worked for Cohen early in his career, was brought on board in mid-2016 to build a new multi-sector global equity unit from scratch. Earlier in 2016, Citadel cut roughly a dozen people at another of its stock picking units Surveyor Capital and last year it shut down another stock unit, Ravelin, and merged it into its Global Equities unit.

Many of Aptigon’s portfolio managers came from Visium Asset Management, which was going out of business in the summer of 2016 and had more than a dozen portfolio managers ready to move to a rival firm. Griffin made them generous offers, including pay packages and promised cash to hire analysts, and touted Citadel’s state-of-the-art trading technology, the sources said.

Of the original group of portfolio managers who moved over from Visium only two remain with Citadel, the sources said.

Some of Schimel’s hires, who generally had not been at Citadel for more than a year, are still with Citadel however.

Neel Parekh, who shut down his Night Square Capital to join Aptigon, and Chris Connor, who closed down Ardmore Global Investors to join, also remain. Recent recruits Noah Yosha, who once worked for HealthCor Management, and energy investor John Meloy, who came from Balyasny Asset Management, are also still with Citadel. (Reporting by Svea Herbst-Bayliss Editing by Lauren Tara LaCapra, Susan Thomas and Grant McCool)

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